ANALYSIS OF THE ‘ESSENTIAL FACILITIES DOCTRINE’ IN COMPETITION LAW

(Project towards the partial fulfilment of assessment in the subject of Competition Law)

Submitted by: Submitted to:

Raghvendra Khichi (16B122) Mr. Udaykumara Ramakrishnan

Shubham Phophalia (16B153) Assistant Professor of Law

Semester VIII Gujarat National Law University

B.A. LL.B (Hons)

SUMMER SEMESTER

(JANUARY-MAY 2020)

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 INTRODUCTION
An “essential facilities doctrine” (“EFD”) specifies when the owner(s) of an “essential” or
“bottleneck” facility is mandated to provide access to that facility at a “reasonable” price.
In popular jargon, this is also referred to as Third Party Access or Open Access. The
doctrine requires a monopolist/dominant firm to grant access to a facility (which is
difficult to replicate) that it controls and that is necessary for effective competition. For
example, such a doctrine may specify when a railroad must be made available on
“reasonable” terms to a rival rail company or an electricity transmission grid to a rival
electricity generator. The concept of “essential facilities” requires there to be two markets,
often expressed as an upstream market and a downstream market. Typically, one firm is
active in both markets and other firms are active or wish to become active in the
downstream market. A downstream competitor wishes to buy an input from the integrated
firm but is refused. An EFD defines those conditions under which the integrated firm will
be mandated to supply.

The term “essential facilities doctrine” originated through the commentary on United
States antitrust case law and now has multiple meanings, each having to do with
mandating access to something by those who do not otherwise get access. The variance in
definitions is great. Indeed, commentators cannot even agree on which U.S. cases come
within the purview of "essential facilities."

While essential facilities issues do arise in purely private, unregulated contexts, there is a
tendency for them to arise more commonly in contexts where the owner/controller of the
essential facility is subject to economic regulation or is State-owned or otherwise State-
related. Hence, there is often a public policy choice to be made between the extension of
economic regulation and an EFD under the competition laws. Further, the fact of
regulation of pricing through economic regulation, State-control, or a prohibition of
“excessive pricing” in the competition law, has implications for the nature of an EFD.

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 EVOLUTION AND APPLICATION OF EFD UNDER INTERNATIONAL
JURISPRUDENCE
EFD cases flow out mostly from Section 2 of the Sherman Act1 and partially from Section 1.2
Though there is no express reference to EFD but if we look at the way the Courts have gone
on to interpret Section 2 of the Sherman Act, we do find reference to the doctrine. 3 Under US
law, EFD is a subset of ‘refusal to deal’ cases.

The first important case in this regard was United States v. Terminal Railroad Association of
St. Louis4 wherein a group of railroads controlled all the bridges and connection from and
towards St. Louis which was an important railroad injunction. The Court passed an injunction
for open and equal access to allow other railroads to join the combination or to use the
facilities in a non-discriminatory manner.

The second important case was of Associated Press v. United States5 wherein there was a
joint venture of 1200 newspapers with the bye- laws prohibiting service of Associated Press
news to non-members, and empowered members to block membership applications of
competitors and also imposed fines and penalties on members who breached its bye-laws.
The Court held that the bylaws of the defendant association, constituted restraints of trade
and the defendant association could not discriminate against competitors in its admissions
policy.

However, both the Transit Association case and the Associated Press case were cases relating
to restraint of trade covered under s. 1 of the Sherman Act and not as abuse of monopoly
power case.

1
Sherman Antitrust Act, 1890, hence after known as the Sherman Act.
2
S. 2 of the Sherman Act, 1890 states: “Section 2. Monopolizing trade a felony; penalty: Every person who
shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to
monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be
deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a
corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said
punishments, in the discretion of the court.”
3
The United States Supreme Court has never actually recognized a distinct EFD. However, lower federal courts
in the United States have found that Supreme Court’s opinions consistent with the view that the denial of an
essential facility can, under certain circumstances, constitute an antitrust violation. See “OECD Roundtables on
Competition Policy: The Essential Facilities Concept”, OCDE/GD (96)113, Organization for Economic Co-
operation and Development Paris 1998, pg. 87.
4
United States v. Terminal Railroad Association of St. Louis 224 U.S. 383 (1912).
5
Associated Press v. United States 326 U.S. 1 (1945).

3
Otter Tail Power Company V. United States6 is described to be the first monopoly case under
Section 2 of the Sherman Act which can be distinguished from the restraint of trade cases.
Otter Tail Power Company distributed electric power in 465 towns in Minnesota, North
Dakota and South Dakota. In towns where Otter Tail distributed at retail, it operated under
municipally granted franchises which are limited from 10 to 20 years. When some of the
franchises expired, the relevant towns wanted to replace Otter Tail with their own municipal
electricity distribution system. Otter Tail attempted to prevent towns from replacing it with a
municipal distribution system and so refused to sell power at wholesale to proposed
municipal systems in the communities where it had been retailing power. The Court held the
actions of Otter Tail to be in violation of Section 2 and held that Otter Trail had used its
monopoly power to foreclose competition or gain competitive advantage, or to destroy a
competitor. The US Supreme Court held that Otter Tails refusal to supply would be counted
as general monopolization under Section 2. It went on to decide the case on the basis of
Section 2 rather than EFD but this case is widely cited as an EFD case.

In Aspen Skiing Co. v. Aspen Highlands Skiing Corp7, Aspen Skiing Co. (Aspen) owned three
mountains and Aspen Highlands Skiing Corp. (Highlands) owned one mountain in the Aspen
area. The two companies used to offer a four-mountain ski ticket, allowing skiers access to all
four mountains. In 1978, Aspen cancelled the collaboration with Highlands, with the result
that Highlands attracted fewer skiers. Both the Court of Appeals and the Supreme Court held
Aspen’s cancellation to infringe Section 2 of the Sherman Act. The Court of Appeals relied
both on EFD as well as on section 2 of the Sherman Act to come to its judgment. The
Supreme Court affirmed the liability solely on Section 2 but came to the same judgment. It
held that Ski Co.’s decision to refuse cooperation was based on sacrifice of immediate profits
to reduce competition in the Aspen market over the long run.
This was followed by MCI V. AT & T8 wherein the seventh Circuit made express reference to
EFD. AT & T controlled local phone system and faced competition from MCI and hence did
not interconnect MCI’s long distance traffic to local phone systems. MCI alleged violation of
section 2 of the Sherman Act. AT & T argued that refusal to interconnect was justified based
on technological incompatibility besides various other factors. Seventh Circuit affirmed
liability under EFD. It was held that a monopolist may be required to assist rivals by sharing

6
Otter Tail Power Company V. United States 410 U.S. 366 (1973).
7
Aspen Skiing Co. v. Aspen Highlands Skiing Corp 472 U.S. 585 (1985).
8
MCI V. AT & T 512 US 218 (1994).

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a facility if the monopolist can “extend monopoly power from one stage of production to
another” and the following four elements are found:
(1) control of the essential facility by a monopolist; (2) a competitor’s inability practically or
reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a
competitor; and (4) the feasibility of providing the facility. This case is stated as one of the
most important one in laying down the EFD in express terms.
However, in 2004 the United States Supreme Court in the case of Verizon Communications
Inc. v. Law Offices of Curtis V. Trinko9 was skeptical about liability under Section 2 of the
Sherman Act for unilateral refusals to deal. Justice Scalia stated: “…“The complaint alleges
that Verizon denied interconnection services to rivals in order to limit entry. If that allegation
states an antitrust claim at all, it does so under §2 of the Sherman Act, 15 U. S. C. §2, which
declares that a firm shall not “monopolize” or “attempt to monopolize.”.. It is settled law that
this offense requires, in addition to the possession of monopoly power in the relevant market,
“the willful acquisition or maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business acumen, or historic accident.”
The mere possession of monopoly power, and the concomitant charging of monopoly prices,
is not only not unlawful; it is an important element of the free-market system. The
opportunity to charge monopoly prices–at least for a short period–is what attracts “business
acumen” in the first place; it induces risk taking that produces innovation and economic
growth. To safeguard the incentive to innovate, the possession of monopoly power will not be
found unlawful unless it is accompanied by an element of anticompetitive conduct.” The
Court said that the indispensable requirement for invoking the doctrine is the unavailability of
access to the “essential facilities”; where access exists, the doctrine serves no purpose. It went
on to further hold that essential facility claims should be denied where a state of federal
agency has effective powers to compel sharing and to regulate its scope and terms.10
Another leading case on the operation of the essential facilities doctrine in the EU is Oscar
Bronner Gmbh v. Mediaprint Zeitungs Gmbh11, in which the European Court of Justice held
that for application of EFD it is necessary to show that access is being refused to a facility
that is indispensable for carrying on business and there is no actual or potential substitute for
that facility. Oscar Bronner was the publisher of a daily newspaper while Mediaprint was the
publisher of two daily newspapers and carried on the marketing and advertising business of

9
Verizon Communications Inc. v. Law Offices of Curtis V. Trinko 540 U.S. 398 (2004)
10
Id.
11
Oscar Bronner Gmbh v. Mediaprint Zeitungs Gmbh Case C-7/97 [1999] 4 CMLR 112.

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those newspapers. Oscar Bronner argued that under the doctrine of EFD, Mediaprint was
obliged to allow access to the home-delivery service by competing products and at market
prices. The Court held that: “The refusal by a press undertaking which holds a very large
share of the daily newspaper market in a Member State and operates the only nationwide
newspaper home-delivery scheme in that Member State to allow the publisher of a rival
newspaper, which by reason of its small circulation is unable either alone or in cooperation
with other publishers to set up and operate its own home-delivery scheme in economically
reasonable conditions, to have access to that scheme for appropriate remuneration does not
constitute the abuse of a dominant position within the meaning of Article 86 of the EC
Treaty….It would still be necessary not only that the refusal of the service comprised in home
delivery be likely to eliminate all competition in the daily newspaper market on the part of
the person requesting the service and that such refusal be incapable of being objectively
justified, but also that the service in itself be indispensable to carrying on that person’s
business, in as much as there is no actual or potential substitute in existence for that home-
delivery scheme…. It should be emphasized in that respect that, in order to demonstrate that
the creation of such a system is not a realistic potential alternative and that access to the
existing system is therefore indispensable, it is not enough to argue that it is not economically
viable by reason of the small circulation of the daily newspaper or newspapers to be
distributed.”

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 COMPARATIVE ANALYSIS OF THE US AND EU APPROACH.
Though the doctrine traces its roots to the US law we find it more deeply rooted under the EC
law.US law advocates a more restricted use of EFD partly because of the influence of the
Chicago School of Thought which believes in market being a self-correcting thought12 and
partly upon the legal provisions.

While the EC law13 casts a duty on the dominant firms to share as well as supply, the US law
has no such aspirations. Section 2 of the Sherman Act prevents monopolization and attempt
to monopolize which has helped the courts to carve out EFD as an exception to the general
rule that firms are under no obligation to share. The EC law is based on achieving the goal of
integration- integration throughout the European Union. Also, the recent breakup of State
monopolies in the EU makes EFD lucrative. The Commission uses EFD as an instrument to
prevent dominant companies from abusing their position. Given all these it can very well be
summed up that US laws are more concerned with going for an restricted interpretation of
EFD while the EC has been more liberal in its use, though it seems that EC might catch up
with the US approach looking at the cautious approach it has started advocating.

12
See Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV. 925, 938-44 (1979).
13
Article 82.

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 INDIAN APPROACH TO EFD
In India EFD cases come up as abuse of dominant position in the form of denial of market
access. Section 4(2)(c) of the Competition Act 2002 warns dominant firms against indulging
in practices resulting in denial of market access.14

Further Section 4 of the said Act defines dominance in terms of position of strength in the
relevant market in India which enables it to operate independently of the competitive forces
prevailing in the relevant market or affects its competitors or consumers or relevant market in
its favor.15 Relevant market16 has been defined with reference to relevant product market17 or
relevant geographic market18 or both. Section 19 (4) lists down the factors to be taken into
consideration while determining dominance. These include interalia market share, size,
resource, importance of competitor, dependence of consumer, market structure etc.19 Factors
to be taken into consideration for determining relevant geographic market or relevant product
market are defined under Section 19 of the Act.20

If we look at the way Indian Law is worded we find close resemblance to EC law. Especially
the insistence on markets be it product or geographic makes it akin to EC law. US law on the
contrary treads a different path restricting monopolization or attempt to monopolize both
having recognition under the Indian Law and the EC Law. Both these jurisdictions accept
dominant position and are against abuse of that position unlike US Law which looks upon the
mere existence of dominant position with contempt.

The NSE case was one of the first cases where the Commission dealt with abuse of
dominance. One of the issues was that FTIL— the promoter company of MCX — also
provided software product under the brand name ODIN that was used across multiple stock
exchange platforms for trading in various products including the CD segment. Subsequently,
NSE introduced its own software NOW for its CD segment. NOW and ODIN were
substitutable with respect to the NSE CD segment. It was alleged that NSE refused to share
its application program interface code (“APIC”) with FTIL; thus disabling ODIN users from

14
This can be termed as the implicit recognition of the doctrine.
15
Explanation to Section 4, Competition Act, 2002 provides: Explanation.—For the purposes of this section,
the expression— (a) “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant
market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant
market; or (ii) affect its competitors or consumers or the relevant market in its favour.
16
Section 19 (5), Competition Act 2002.
17
Section 2 (t), Competition Act 2002.
18
Section 2 (s), Competition Act 2002.
19
Section 19 (4), , Competition Act 2002.
20
Section 19 (6) and 19 (7), Competition Act 2002.

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connecting to the NSE CD segment. The CCI held this conduct, i.e. NSE’s denial of APIC to
FTIL as an abuse of dominance. Interestingly in this case, the Commission observed that it
was the software (ODIN and NOW) which were essential facilities for trading in stock
exchange. It is important to note that this case is generally not considered to be precedence
for the doctrine. However, the basic principle — of attributing liability to NSE for denying
APIC to MCX that would enable them to create ODIN compatible with NSE CD segment
seems to be an implicit acceptance of the application of this doctrine.21

EFD was examined by the CCI in the case of Arshiya Rail Infrastructure Limited (ARIL).22
The CCI held that Container Corporation of India (CONCOR) was not dominant in the
relevant market but as an obiter on the issue of access of terminals of CONCOR held that
essential facilities doctrine can be only be invoked in certain circumstances © technical
feasibility ton provide access; (b) possibility of replicating the facility in a reasonable period
of time, distinct possibility of lack of effective competition if such access is denied and
possibility of providing access on reasonable terms. Although the parameters are much wider
that the parameter that have been provided in Europe, in the case at hand in CONCOR it was
held that since there were no technical, legal or economic reasons why the other Container
Train Operators should not invest. It will be interesting to see of the same parameters would
be adopted for future cases or it would only be seen as an obiter.

In the landmark judgement of Shamsher Kataria v. Honda Siel Cars India Ltd.23, the DG
concluded that spare parts, diagnostic tools, manuals, etc., of each OEM would constitute
essential facilities for the independent repairers to be able to provide consumers with
effective after-sale repair and maintenance work. This would be essential for independent
repairers to be able to effectively compete with the authorized dealers of the OEMs. The
Commission pointed out that the essential factors to be taken into account in determining
whether spare parts of each OEM would constitute essential facilities for independent
repairers are: (a) control of the essential facility by the monopolist; (b) the inability to
duplicate the facility; (c) the denial of the use of the facility; and (d) the feasibility of
providing the facility.

21
MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. & Ors., Case No. 13/2009
22
Arshiya Rail Infrastructure Limited (ARIL) v. Ministry of Railways, (2013) 122 CLA 297 (Competition
Commission of India).
23
Shamsher Kataria v. Honda Siel Cars India Ltd., (2014) Comp. L.R. 1 (Competition Commission of India).

9
Therefore, access to such technology was critical for any entity undertaking after-sale
services to be able to compete effectively on the market.

However, in India, more than through the Competition law framework, India witnesses
application of EFD through intervention of sectoral regulatory institutions.

Section 11(1) (c) and Section 11(1) (l) of the TRAI Act, mandate interconnection and
technical compatibility between various service providers and maintain a register of such
agreements.24

The Petroleum and Natural Gas Regulatory Board Act (PNGRB) 2006 Act exhibits the idea
of essential facilities in the definition of ‘common carrier’ or ‘contract carrier. The board can
also regulate the open access and transportation rate under Section 61(e).25 Further, in 2008,
the Ministry of Petroleum and Natural Gas issued a draft regulation according to which, once
an infrastructure is declared common user facility, it is compulsory for the body owning the
capacity to share it with the other users.

The Electricity Act 2003 captures elements of EFD by defining what it terms, ‘open access’
(stated under Section 42(2) and 47(2) of the Act). Open access implies non-discriminatory
provision of distribution or transmission to any licensee, consumer or a person engaged in
generation in accordance with the regulations specified by the Appropriate Commission.

24
The Telecom Regulatory Authority of India Act 1997 (TRAI), ss 11 (1)(c), 11 (1)(l).
25
The Petroleum and Natural Gas Regulatory Board Act (PNGRB) 2006, s 61(e).

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 ANALYSIS AND CONCLUSION
While arguments have been given both for and against the utility of EFD and also these
arguments have defined the treatment meted to it under different jurisdictions, in this case
specially referring to the US and EU approach , the mere fact we are still debating the utility
of the doctrine goes on to prove that it is still working. It need not be provided in express
terms in law but seems to be working behind the machinery of law. It appears as a saving
clause to be operated upon when the full force of the market structure could lead to
undesirable consequences.

EC appears to be more liberal in its use of EFD and India seems likely to take that path while
US lives to its capitalist image by subscribing to the Chicago School of thought and a much
more restricted use of EFD, preferring to deduce it from Sherman Act rather than express
mention to it.

The main reason for the wide application of EFD stems from the responsibility attached to a
dominant enterprise. The CCI has in numerous cases held that a dominant enterprise has a
special responsibility vis-à-vis others.26

However, a problem that persists and shall continue to persist is that the pivot over which
EFD cases revolve is to decide when the shared use becomes essential. The definition and
meaning of what would be ‘essential’ is a dynamic concept which is bound to change with
the coming times and the paid pace of technology.

One of the recent examples of this is the proliferation of network goods. Network goods are
characterised by the value of the good/service to a consumer being dependent upon the
number of other consumers. Put simply, one is likely to value his cell phone more, if more of
his friends possess it. The classic real-world example of this is the dominance of Microsoft's
Windows as the de facto operating system for PCs all over the world in recent times. The
European Court of Justice in its 2004 ruling on Microsoft indicated that Microsoft's refusal to
disclose interoperability information created significant barriers to market entry, owing to
indirect network effects, and is thus an abusive conduct. The interoperability decision may be
seen as the remedy to the denial of an essential facility to other operating system developers.

26
In Re. M/s HT Media Limited & M/s Super Cassettes Industries Limited, Case No. 40/2011; Belaire Owners'
Association vs DLF Limited, HUDA & Ors., Case No. 19/2010

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This interpretation of ‘essentiality’ has only increased with recent cases such as when EC
warned Motorola and Samsung over abuse of essential patents in smartphones wars
threatening sanctions against companies that use "essential" patents for standards as weapons
in courtroom litigation – and recent cases between Apple, Motorola and Samsung.

Thus, with the passage of time and the proliferation of technology, the utility of this doctrine
is only bound to increase.

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 BIBLIOGRAPHY

Cases

Arshiya Rail Infrastructure Limited (ARIL) v. Ministry of Railways, (2013) 122 CLA 297
(Competition Commission of India) .................................................................................... 10

Aspen Skiing Co. v. Aspen Highlands Skiing Corp 472 U.S. 585 (1985). ................................. 5

Associated Press v. United States 326 U.S. 1 (1945) ................................................................ 4

In Re. M/s HT Media Limited & M/s Super Cassettes Industries Limited, Case No. 40/2011;
Belaire Owners' Association vs DLF Limited, HUDA & Ors., Case No. 19/2010 .............. 12

MCI V. AT & T 512 US 218 (1994). .......................................................................................... 5

MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. & Ors., Case No.
13/2009 ................................................................................................................................ 10

Oscar Bronner Gmbh v. Mediaprint Zeitungs Gmbh Case C-7/97 [1999] 4 CMLR 112. ....... 6

Otter Tail Power Company V. United States 410 U.S. 366 (1973) ........................................... 5

Shamsher Kataria v. Honda Siel Cars India Ltd., (2014) Comp. L.R. 1 (Competition
Commission of India). ......................................................................................................... 10

United States v. Terminal Railroad Association of St. Louis 224 U.S. 383 (1912) ................... 4

Verizon Communications Inc. v. Law Offices of Curtis V. Trinko 540 U.S. 398 (2004) ........... 6

Statutes

S. 2 of the Sherman Act, 1890 ................................................................................................... 4

Section 19 (4), , Competition Act 2002 ..................................................................................... 9

Section 19 (5), Competition Act 2002 ....................................................................................... 9

Section 19 (6) and 19 (7), Competition Act 2002 ...................................................................... 9

Section 2 (s), Competition Act 2002.......................................................................................... 9

13
Section 2 (t), Competition Act 2002 .......................................................................................... 9

Section 4, Competition Act, 2002 .............................................................................................. 9

Sherman Antitrust Act, 1890, hence after known as the Sherman Act...................................... 4

The Petroleum and Natural Gas Regulatory Board Act (PNGRB) 2006, s 61(e).................... 11

The Telecom Regulatory Authority of India Act 1997 (TRAI), ss 11 (1)(c), 11 (1)(l). .......... 11

Articles

“OECD Roundtables on Competition Policy: The Essential Facilities Concept”, OCDE/GD

(96)113, Organization for Economic Co-operation and Development Paris 1998, pg. 87. ... 4

Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV. 925, 938-
44 (1979) ................................................................................................................................ 8

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